Time to switch your bank account?

Changing banks is one of those activities that most people seem to avoid. Despite the industry moving to seven day account switching, the number of customers switching bank accounts in the UK is virtually flat and according to the Payments Council, in 2014 there were only 1.2 million switches. The recent FCA report (Making Current Account Switching Easier) states:

“Since September 2014, annual switching volumes have begun to fall back and by January 2015 were 16% higher than when CASS was launched and only 2% higher than the November 2012 peak in switching volumes using the previous switching mechanism.”

The report from the FCA on the effectiveness of the Current Account Switch Service suggests this is because of consumer inertia and awareness and confidence in CASS being low. My experience of using CASS last year was good. Apart from a lot of paperwork that had to be completed, my switch went through as planned, with no errors. The FCA has suggested that account number portability would improve the situation but as the current system works it’s hard to see that spending a huge sum of money on making switching simpler will make a difference.

The Payments Council publishes data each quarter showing gains and losses by bank. Whilst the legacy banks are net losers (as expected) it’s impossible to build a clear view of challenger bank gains because some of them (e.g. Handelsbanken, Metro Bank) don’t provide data and others are included under parent brands (e.g. First Direct and M&S are included under HSBC). TSB data would be interesting as with 630 odd branches and a ‘new’ brand on the high street I would expect it to be making an impact but the most recent figures include it under then parent Lloyds. Last year TSB added 500,000 new accounts, many presumably from other banks.

I see the biggest barrier to encouraging consumers to switch banks being consumer inertia, driven by a perception that most banks are similar, both in products and service. We have yet to see much market differentiation via product differentiation. Whilst there are some excellent ‘challenger’ banks out there, their profile is often very low and their range of accounts limited; some like Aldermore and Charter only offer deposit accounts. As the challenger bank market grows and the number offering current accounts increases, consumers will have more choice of where to switch. Digital banks like Atom and Starling plus the RBS spin-out Williams & Glyn will add to the choice. However ultimately it will be up to consumers to show their banks what they think of them; identify more appropriate organisations for their banking needs and move their accounts to competitors.

You can read the full report here.